The madness around the $99 and $149 TouchPad sale suggests that there might be a HUGE market for low-priced, high quality Tablets from an established brand. A Market that before yesterday night only B&N’s Nook Color was tapping into, and that too partially.

First, the criteria, so we can rule out TabletX from Unknown Manufacturer Y with Zero Quality Control –

Quality – A $100 Tablet is useless if it doesn’t meet some basic quality bar.

A Trustable Brand – HP is supposedly offering to make up the $300 price different to early adopters. That’s the sort of thing people don’t ever expect from an unknown brand. HP, B&N, Amazon – these brands have some amount of trust and carry a guarantee of sorts.

Value for Money – A $99 TouchPad is very attractive because it can be used as an eReader and for surfing the web and for watching movies. At $500 there wasn’t enough value for money – at $100 it is incredible value for money. The response to the Touchpad sale suggests that what most Android Tablet makers are doing wrong is going for the $500 price point and trying to beat iPad on features or technology. It’s price that’s the real opportunity.

At the moment there are only two Tablets that beat iPad on value for money – TouchPad and Nook Color. It’s not a coincidence that TouchPad has sparked off a storm of sales and that B&N is probably the highest selling Tablet (Asus’ Transformer Tablet is also supposed to be doing well).

Amazon and B&N get the opportunity to observe this mad rush and rethink their pricing for their soon-to-be-released Tablets.

There is a Tablet Market – Just not a $500 Tablet Market

The consensus amongst the devotees of Apple is – There is no Tablet Market. There is an iPad Market.

That’s nonsense. Android is already making inroads and the TouchStorm has shown that people will buy Tablets if they are priced right.

B&N claimed last Holiday season to be selling 700,000 Nook Colors a month. That’s a very healthy number. It (in combination with the TouchStorm) suggests that other Tablets (which are selling half a million Tablets a quarter) got their pricing totally wrong.

There are a few big differences between Apple’s iPad and any other Tablet – the better quality (let’s assume its markedly better), the coolness factor, the status signalling ability, being first to market, the app store, usability, aesthetics, the Apple brand.

A Tablet priced at the same price can’t compete. For one, it can never become a status indicator. No other Tablet says ‘disposable income’ like the iPad. For another, it can’t build up the type of trust Apple has in general. We are talking about people who owned iPods and iPhones coming over to buy Tablets. Very few companies have that locked-in user base whose identity has a special cave carved out for Apple.

It’s pointless to attack iPad without taking advantage of the biggest opportunity i.e. the range of prices from $99 to $299.

A Tablet that competes on Value for Money has a very good chance – The mad rush to buy TouchPads shows this, as does the success of the Nook Color.

Should Amazon go with a $500 Kindle Tablet or a $200 one?

A $500 Kindle Tablet with lots of great features would hit the brick wall of ‘Not being as good as Apple’s iPad 2′ which could be translated in so many different ways and means so many different things to so many different people.

It’s just not a fight Amazon should get into. It’s not a rational thing – it’s emotion driven and signal indicator driven. However, people understand value, they understand low prices, and they understand trust. Those are emotional triggers too – for every person who wants to show off his wealth there’s another who wants to get value for money.

A $150 Kindle Tablet would see the sort of frenzy we are seeing for the TouchPad. It would also cut into iPad sales massively. Why? Because people will only pay a certain premium for the ability to signal status.

A $200 to $250 Kindle Tablet would also do very well. It would impact iPad to an extent.

Anything higher and Amazon is pushing its luck.

This brings us to another reason why a low price is important – The first being that the low price negates iPad’s actual advantages (signalling status included).

Not many people have a use for a Tablet.

Which means that if they know they have to pay less they love the option. The whole Tablet market is irrational – no one even knows what Tablets are good for. They just know they want to buy one. So a $200 purchase that satisfies the hunger is more appealing than a $500 purchase.

Now, let’s look at B&N and the Nook Color because it is already showing that there is life beyond the iPad.

Should B&N go even lower in price with Nook Color 2?

Yes, it should.

At $250 Nook Color sold very well. At $200 a Nook Color 2 would become the best-selling non-Apple Tablet. Unless Amazon releases the Kindle Tablet at $200. A $200 Nook Color 2 would also increase the separation between itself and iPad 2 and make it easy for users who don’t care much about signalling status to buy the Nook Color 2.

Contrast the difference between a $200 Nook Color 2 and a $300 Nook Color 2 –

$300 Nook Color 2 with faster processor and X technical improvement.

$200 Nook Color 2 that’s much cheaper than other Tablets.

In the former case users are told about benefits they don’t even understand. In the latter case users can see the $50 drop and the $300 price difference from the iPad.

A Tablet purchase for most people is an experiment. They don’t have a particular task or function for which they need a Tablet – they just have a burning desire to possess a Tablet because everyone says that’s the thing to do. Kids were crazy about Pleo and Furby in past holiday seasons and grown-ups will be crazy about Tablets and eReaders this holiday season.

At $200 you make it easy for users to pick your Tablet. At some level they know that there’s no Tablet use they can think of which their existing devices won’t fulfill (it’s so amazing to sit on the couch and watch a movie on my iPad – my HDTV is 5 feet away but its screen is too big and beautiful). At the same time, they want a Tablet and they must feed the Cool New Device Ownership Hunger. So – make it easy for them. Give them a Tablet they don’t have to think twice about.

That brings us to our final point i.e. Amazon almost certainly already knows all this.

Kindle with Special Offers might just be a testbed for Kindle Tablet with Special Offers

Amazon knows better than almost any other company the difference lower prices make. We are talking about a company that went from a $400 Kindle 1 to a $139 Kindle WiFi. No ‘extra memory for $100′ and no ‘signal how much disposable income you have’ – It just kept cutting the price. You can’t even show off your literary pretensions any more – even people who don’t read own a Kindle, these days.

So, naturally, Amazon wonders about how to get the Kindle Tablet to a price point where buying one becomes a no-brainer. A Tablet for the Rest of Us.

It thinks about offers and deals and advertisements because it’s such an obvious direction to go in. What else could Amazon think about – apart from selling people who own the Kindle Tablet other things from Amazon.

And – wonder of wonders – that’s exactly how it can cut prices. Factor in the future income it will generate by selling people lots of other things like physical Blu-ray discs and digital movie downloads and books and music and kitchen sinks and purple iguanas.

If B&N can release Nook Color for $249, then Amazon can definitely release a pretty good 10″ Kindle Tablet for $350. Then it uses ‘special offers’ (aka future income from an Amazon.com tributary) to cut off another $100. Pure Magic. We have a $250 Tablet that’s comparable with iPad 2 in value for money and perhaps even beats it. And it’s half the price which means a lot more people can buy it. For people addicted to apps there’s even an Amazon Android App Store with 1 free app every single day.

Amazon has been painfully slow to get its Tablet to market but it’s very likely that it won’t make a half-hearted attempt. In some ways, its very future is at stake (it doesn’t want people to switch from Amazon books and CDs and DVDs to iTunes digital everything).

My prediction – $250 Kindle Tablet and $250 or $200 Nook Color 2. And both will sell a ton and by March 2012 Android Tablets will have 45% of the Tablet Market. Apple can keep hammering on Retina Display and RealEmotion Emotional Connection to YourDevice and TrueStatus status signalling $198 Add-on Sticker – The big chink in its armor is that it needs to make huge profits from device sales and there are always companies stupid/forward-focused enough to blow up profits.